Manufacuring Your Product in Mexico Vs. China

Find out Which is Best for You

Mexico Vs. China Manufacturing

Since China joined the WTO in late 2001, manufacturers set up locations in China to cut costs and remain competitive. However, this is no longer the best option.  Many business owners and managers understand that other lower-cost options exist and are returning operations to closer offshore options.


Mexico is your best offshore location because of its proximity to the US market.


Besides labor costs, the vital factors to consider and compare are supply chain challenges, intellectual property protection, communication obstacles, overseeing quality control, and most favorable trade options.


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Labor Costs

Direct comparisons are complicated, and hourly wages only tell part of the story. We must consider productivity and exchange rates to understand the actual cost of production.


Statista's report "Manufacturing labor costs per hour for China, Vietnam, Mexico from 2016 to 2020" (in U.S. dollars) " gives important insight into the differences in manfucturing costs in China and Mexico.


Please note that from 2016 to 2020, the Yuan lost 4% against the dollar, and the peso lost 8% against the dollar. Today Statista writes that "China's average manufacturing labor cost per hour in s USD 6.50 per hour, increasing 13% from last year. Mexico's average manufacturing labor cost per hour in Mexico is USD 4.82 per hour, with an increase of only 4% from 2019 (Statista, 2020), showing a trend of a higher increase in wages in China compared to Mexico."


Also, Mexico has greater productivity with a 48-hour workweek compared to China's 40-hour workweek.


Manufacturing in Mexico is less costly than in China.



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Supply Chain Costs

Lead times of weeks from China to the U.S. results in long delays for your products to arrive in the U.S., where the distance to market from Mexico to the U.S. is days. Further, port delays have resulted in China's longer lead times. The problems these delays create are:


• The increased cost of inventory 

• Delays in fulfilling customer orders


The increased cost of inventory and impact on cashflows should be evident. The hit to customer satisfaction due to shipping delays from China may be more important than any other reason to produce your product in Mexico.


A truck leaving Tijuana in northern Mexico can arrive in California the same day and reach as far as the east coast in three days. Container shipments to US west coast Ports from China have taken at least six weeks and seven to eight weeks recently. This delay is why you find many major industry clusters locate their operations along the US-Mexico border.



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Intellectual Property

Issues essential to the success of many manufacturers are their patents, trade secrets, trademarks, and copyrights. They need to know this Intellectual Property will not find its way to competitors.

Mexico's stance on Intellectual Property is very similar to that of the U.S. 


Intellectual property laws in the U.S. are very different from Intellectual property laws in China! Even more concerning, the Chinese government encourages Chinese companies under official Chinese government policy to poach intellectual property from American companies–often with the active participation of Chinese government personnel.


The U.S. losses are estimated to be as much as $600 billion per year in intellectual property theft by Chinese firms and the Chinese government. Chinese intellectual property theft includes industrial espionage, software piracy, theft of military secrets, reverse engineering, and counterfeiting technical devices that help Chinese firms gain an unfair advantage over competitors.

 

In summary,  intellectual property theft harms companies, innovations, and long-term success.


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Superior Communication

Mexico and the U.S. share the same four time zones, allowing direct factory communications with parent U.S. companies far quicker than communicating with Chinese factories because of the 12-hour time zone difference. Many mid-level Mexican employees understand English and can communicate. In addition, with the substantial Spanish-speaking population in the U.S., verbal and written communications are substantially better than U.S.-based corporations working with manufacturing operations in China.


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Quality Control

The travel distance to Mexico from all U.S. locations provides a better ability for controlling quality because it takes hours to travel to a Mexico-based factory from a U.S. company. In contrast, the travel time to a Chinese factory from the U.S. could take days.


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Trade Agreements

The United States-Mexico-Canada Agreement (USMCA), which entered into force on July 1, 2020, is a mutually beneficial win for North American workers and businesses. This Agreement between Canada, Mexico, and the United States provided lower duty-free rates for products produced in these countries. The Agreement creates more balanced, reciprocal trade supporting high-paying jobs for Americans and growing the North American economy.


Additionally, Mexico has 15+ free trade agreements allowing for duty-free privileges, enabling your company to source materials worldwide and benefit from lower-duty treatment when entering Mexico.



China and the U.S. do not have a free trade agreement.


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China Vs. Mexico

In Conclusion, in 2001, when China joined the WTO, they were the world's lowest-cost manufacturer, but now after more than 20 years, China's labor costs have increased dramatically. With these increasing costs, along with the above information showing the difference between the location of your operation in Mexico vs. China, Manufacturing in Mexico is your best option. 



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Frequently Asked Questions

Have a question about Mexican Technology, Inc. or about manufacturing in Mexico that we haven't answered? Feel free to contact us at any time. We are ready to help your business grow!

  • What is a Maquiladora?

    Maquiladora is the term used to identify the in-bond industry in Mexico whether they are Mexican Corporations or Foreign-owned. Maquiladora operates under a preferential duty-free import/export program called "Maquiladora Program" or “IMMEX Program. This Program allows companies to set up assembly plants in Mexico that receive production machinery, equipment, raw materials, and components for assembly or further processing for subsequent exportation. A maquiladora is a low-cost manufacturing operation in Mexico that manufactures goods for export to the United States or Canada.

  • What is the Main Purpose of Setting up a Maquiladora?

    The main reason is Cost Reduction. You will take advantage of lower labor costs, and your operation will be relatively close to the United States permitting easier importation of raw materials and export of finished products. Additionally, your product gains regional content value, which allows for preferential treatment under USMCA tariff and quota guidelines. A maquiladora also enjoys favorable tax treatment, such as duty-free and tariff-free imports.


  • Who benefits from Maquiladora Operations?

    Mexico Maquiladora operations are diverse that include textile & apparel, electric and electronics, foods, medical, automotive, aircraft, and furniture. U.S. and Mexican companies, both small and large, are the primary benefactors in this field, followed by Asia countries, Japan and Korea, and a few European firms.


  • What is the Importance of this Industry and its Future Outlook?

    About 3,000 maquiladoras operate in free trade zones in Mexico, employing some 1.5 million people in Mexico and are one of the largest sources of trade income after petroleum exports. 


    While China and other Asian countries remain an essential component of the global supply chain, procurement bids to suppliers in Mexico are surging. From 2020 to 2021, US companies searching for lower-cost options have increased by 150% towards Latin America and a drop in sourcing from Asia-Pacific by 30%.


  • Where is the Maquiladora Industry Located?

    Most operations (70%) are in significant border cities like Tijuana, CD. Juárez and Matamoros are adjacent to major US cities. The rest (30%) are in various interior areas of Mexico.


  • What about Productivity and Quality in Mexican Manufacturing?

    The success and growth of companies producing and assembling in Mexico speaks to the quality of the Mexico labor force.


    A number of Maquilas are ISO9000 certified and several are working toward implementing ISO14000. Quality management concepts like Six-Sigma, SPC, TQM, and JIT are part of the day-to-day operations in many Mexican manufacturing operations.


  • How do These Companies Set-up Operations in Mexico?

    Three classic strategies are listed below with increased risk, investment, and start-up time. They include Subcontract, Shelter, and a Wholly Owned Subsidiary. 


    Subcontract is as simple as sending a P.O. to a Mexican Maquiladora subcontractor on a negotiated per piece-rate basis. 


    A Shelter program is a more complicated step, based on a U.S. contractual agreement to allow you to operate in Mexico under the corporate shield and assistance of a Shelter Service Provider. 


    A Wholly Owned Subsidiary requires establishing your Mexican Corporation with a Maquiladora Permit and total exposure to the Mexican legal and regulatory systems. For a company to be considered a maquiladora, it must obtain approval from Mexico’s Secretary of the Economy


  • Where is Mexican Technology, Inc. located?

    Or Mexico Facilities are about 30 minutes south of San Diego, Ca. in Tijuana, Mexico. It is a well-developed "manufacturing center" and uniquely positioned to take advantage of the current supply and demand trends within the Maquiladora Industry and USMCA market.

    Labor. Tijuana, a city of 2 million people, has a large and stable labor force of unskilled, skilled, and mid-management employees. Its people have roots in the area. The abundance of labor and its stability combine to minimize employee turnover.

    Proximity. Tijuana is close to the two San Diego Port of Entries, which connects with every primary market through interstate and rail. Tijuana and Southern California shipments arrive the same day. However, shipments to and from Northern California are on a next-day basis. Tijuana's good roads and efficient border crossings offer low-cost connections with primary U.S. transportation services. 

    Services. Tijuana has always been a good location for possibly sourcing some raw materials used in the Maquiladora industry. Tijuana can provide clients with professional, financial, and logistic services and many modern industrial sites for purchase or lease at rates competitive with any other major Maquiladora center.

    Infrastructure. The infrastructure in Tijuana supports 2 million inhabitants and continues to permit its dynamic growth. It is the primary power producer in Baja, California, servicing large manufacturing and assembly companies. It has natural gas access lines and sufficient water for future growth. Its roads and sewer systems are modern and in good repair. Infrastructure will not limit development for the foreseeable future.

    Political Stability. Baja California in general and Tijuana are models for political stability in Mexico. The peacefulness of the political process and its manufacturing-friendly outlook are significant advantages for attracting companies concerned with long-term political liability.

    Climate. Tijuana has the best summer climate, and winters are also the most delightful of all the other border cities.  


  • What does Mexican Technology, Inc. do?

    Subcontracting, packaging, and manufacturing options - Subcontracting is the same as purchasing, with the main difference being that we manufacture your product to your order specifications. This alternative is most effective as a phase-in period and for components not requiring much technical support or equipment. It utilizes our existing subcontract manufacturing capability and our sourcing relationships in Mexico. You provide the specifications, training, any specialized equipment, and all raw and packaging materials required to make your product. We offer the manufacturing space in one of our Mexico facilities and the workforce needed to produce your product, which allows you to reduce the labor cost portion of your product.


    The main advantages of our Subcontract Program are that you will have a fast, relatively uncomplicated start-up. We'll use our existing subsidiary in Mexico to act as the company of record with the Mexican authorities while performing all start-up activities and all ongoing operational and administrative functions.


    Our typical customers are companies seeking a fast un-compromised cost reduction alternative. The significant advantages are no direct investment in Mexico, the start-up of the operation is quick, no long-term liabilities, and there's no liability with employees; you can start the process with a simple purchase order.


    Our Shelter Program acts as an umbrella to protect you from government rules, regulations 

    and bureaucracy, and it allows you to manufacture under our Mexico corporate entity and permits.


    This Plan is ideal for companies that lack the experience or knowledge to set up operations offshore, such as negotiating or acquiring long-term commitments and dealing with the day-to-day administration of a Mexico facility. Our Shelter option covers the essential elements; you must supply investment, raw materials, capital equipment, and know-how to manufacture your product. Unlike the subcontract option, the shelter company is a service company and is not directly responsible for your manufacturing or assembly operations. The Shelter provides a corporate legal structure and a complete package of administrative and operational services, including a workforce, to support your day-to-day manufacturing operating requirements.


    Under the Shelter Plan, a contractual "Services Agreement" is the basis of our relationship. You will supervise and coordinate production-related activities with complete control over the quality of the product. At the same time, the Shelter provides all ongoing operational and administrative functions keeping the operation legal and compliant in Mexico.


Benefits of Manufacturing in Mexico